LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITED …

LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITED 2019 AUDITED FINANCIAL STATEMENTS

KPMG a Bahamian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative ("KPMG International"), a Swiss entity.

KPMG. PO Box N 123 Telephone (242) 393-2007 Montague Sterling Centre Fax (242) 393-1772 East Bay Street Internet www.kpmg.com.bs Nassau, Bahamas

INDEPENDENT AUDITORS’ REPORT

To the Shareholder of Laurentide Insurance and Mortgage Company Limited

Opinion

We have audited the financial statements of Laurentide Insurance and Mortgage Company Limited (“the Company”), which comprise the statement of financial position as at December 31, 2019, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’sability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

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KPMG a Bahamian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative ("KPMG International"), a Swiss entity.

KPMG. PO Box N 123 Telephone (242) 393-2007 Montague Sterling Centre Fax (242) 393-1772 East Bay Street Internet www.kpmg.com.bs Nassau, Bahamas


To the Shareholder of Laurentide Insurance and Mortgage Company Limited

Opinion

We have audited the financial statements of Laurentide Insurance and Mortgage Company Limited (“the Company”), which comprise the statement of financial position as at December 31, 2019, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’sability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

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Auditors Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due tofraud or error, design and perform audit procedures responsive to those risks, and obtain auditevidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accountingand, based on the audit evidence obtained, whether a material uncertainty exists related toevents or conditions that may cast significant doubt on the Company’s ability to continue as agoing concern. If we conclude that a material uncertainty exists, we are required to drawattention in our auditors’ report to the related disclosures in the financial statements or, if suchdisclosures are inadequate, to modify our opinion. Our conclusions are based on the auditevidence obtained up to the date of our auditors’ report. However, future events or conditionsmay cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures, and whether the financial statements represent the underlying transactions andevents in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

June 26, 2020Nassau, Bahamas

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INDEPENDENT AUDITORS’ REPORT (continued)

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CERTIFICATION

This Certificate is prepared in accordance with the provisions of the Insurance Act, 2005 in respect of the life and health insurance business of Laurentide Insurance and Mortgage Company Limited.

I have examined the financial position and valued the policy liabilities for its balance sheet as at December 31, 2019, and the corresponding change in the policy liabilities in the income statement for the year then ended.

In my opinion

1. The methods and procedures used in the verification of the valuation data are sufficient and reliable and fulfill the required standards of care

2. The methods and assumptions used to calculate the actuarial and the other policy liabilities are appropriate to the circumstances of the company and of the said policies and claims

3. The valuation of actuarial and other policy liabilities has been made in accordance with generallyaccepted actuarial practice (with such changes as determined and any directions made bythe Commission)

4. The valuation is appropriate under the circumstances of the company and the financial statements fairly reflect its results

5. Having regard for the results of the investigation performed pursuant to section 62 of the Insurance Act, 2005 the value of actuarial and other policy liabilities, when taken together with the total capital available makes good and sufficient provisions for all unmatured obligations under the terms of the policies in force

Na TaFellow of the Society of ActuariesFellow of the Canadian Institute of ActuariesFebruary 14, 2020 Oliver, Wyman Limited

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LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITEDSTATEMENT OF FINANCIAL POSITIONDecember 31, 2019, with corresponding figures as of December 31, 2018(Expressed in Bahamian dollars)

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LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITED

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year Ended December 31, 2019, with corresponding figures as of December 31, 2018 (Expressed in Bahamian dollars)

2019 2018

INCOME Gross premiums 5,133,602$ 3,732,011$ Refunds (284,494) (1,308,520) Commissions (Note 7) (513,360) (373,201) Tax on premiums (154,008) (111,960)

Net premium income 4,181,740 1,938,330 Interest income, effective interest rate method (Note 4 and 7) 1,959,673 2,003,256

Total income before expenses 6,141,413 3,941,586

EXPENSES Claims 1,928,425 2,089,706 Change in life assurance fund liability (Note 6) (1,268,895) (2,648,365) General and administrative Fees - Parent (Note 7) 300,000 300,000 Other 106,032 84,100

Total expenses 1,065,562 (174,559)

TOTAL PROFIT AND COMPREHENSIVE INCOME 5,075,851$ 4,116,145$

The accompanying notes form an integral part of these financial statements.

LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITEDSTATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEYear ended December 31, 2019, with corresponding figures for 2018(Expressed in Bahamian dollars)

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STATEMENT OF CHANGES IN EQUITY Year Ended December 31, 2019, with corresponding figures as of December 31, 2018 (Expressed in Bahamian dollars)

Share Contributed Retained Capital Surplus Earnings Total

Balance as at December 31, 2017 300,300$ 2,750,000$ 37,347,729$ 40,398,029$

Total profit and comprehensive income - - 4,116,145 4,116,145

Dividends ($26.00 per share) - - (2,730,000) (2,730,000)

Balance as at December 31, 2018 300,300 2,750,000 38,733,874 41,784,174

Total profit and comprehensive income - - 5,075,851 5,075,851

Dividends ($30.00 per share) - - (3,150,000) (3,150,000)

Balance as at December 31, 2019 300,300$ 2,750,000$ 40,659,725$ 43,710,025$


LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITEDSTATEMENT OF CHANGES IN EQUITYYear ended December 31, 2019, with corresponding figures for 2018(Expressed in Bahamian dollars)

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STATEMENT OF CASH FLOWS Year Ended December 31, 2019, with corresponding figures as of December 31, 2018 (Expressed in Bahamian dollars)

2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES Total profit and comprehensive income 5,075,851$ 4,116,145$ Adjustment for interest income (1,959,673) (2,003,256) Decrease in deposit - Parent - - Decrease in due from Parent (630,523) 1,284,991 Increase in other assets (209) (1,253) Decrease in life insurance fund liability (1,268,895) (2,648,365) Increase/ (Decrease) in other liabilities 23,865 (21,518)

Net cash from operating activities 1,240,416 726,744

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of investments (5,175,000) -

Redemption of investments 5,175,000 - Interest received 1,909,584 2,003,256

Net cash from investing activities 1,909,584 2,003,256

CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (3,150,000) (2,730,000)

Net cash used in financing activities (3,150,000) (2,730,000)

NET DECREASE IN CASH AND CASH EQUIVALENTS - -

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - -

CASH AND CASH EQUIVALENTS, END OF YEAR -$ -$


LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITEDSTATEMENT OF CASH FLOWSYear ended December 31, 2019, with corresponding figures for 2018(Expressed in Bahamian dollars)

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LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITEDNotes to Financial Statements

Year Ended December 31, 2019 (Expressed in Bahamian dollars)

1. General Information

Laurentide Insurance and Mortgage Company Limited (“the Company”), is a wholly-owned subsidiary of Commonwealth Bank Limited (“the Parent”).

The Company is incorporated under the laws of the Commonwealth of the Bahamas and is a registered life assurance Company. The principal business of the Company is to provide credit life insurance in respect of loans provided to customers of the Parent.

The registered office is located at GTC Corporate Services Limited, P.O. Box SS-5383, Nassau, The Bahamas.

2. Basis of preparation

(a) Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). These policies have been consistently applied to all years presented, unless otherwise stated.

(b) Basis of measurement

The financial statements have been prepared on the historical cost basis, unless otherwise stated.

(c) Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company’s accounting policies.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3(i).

(d) New standards, amendments and interpretations adopted by the Company

A number of other new standards are also effective from 1 January 2019 but they do not have a material effect on the Company’s financial statements.

New standards, amendments and interpretations not yet adopted by the Company

IFRS 17 Insurance Contracts (“IFRS 17”) was issued in May 2017. The current standard, IFRS 4, allows insurers to use local GAAP. IFRS 17 defines clear and consistent rules that

LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITEDNOTES TO FINANCIAL STATEMENTSYear ended December 31, 2019(Expressed in Bahamian dollars)

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2. Basis of preparation (continued)

(d) New standards, amendments and interpretations adopted by the Company(continued)

aims to increase the comparability of financial statements. For insurers, the transition to IFRS 17 will have an impact on financial statements and on key performance indicators.

The new standard is applicable for annual periods beginning on or after January 1, 2023. The Company has not yet assessed the impact of adopting this standard and the proposed amendments.

There were no other new standards or proposed amendments which we expect to have a material impact on the financial statements.

3. Summary of Significant Accounting Policies

(a) Cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand and unrestricted deposits with banks that have original maturities of three months or less.

(b) Foreign currency

Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the functional currency). The financial statements are presented in Bahamian dollars, which is the Company’s functional and presentation currency.

Transactions and balances Foreign currency transactions are translated into the functional currency using the rates of exchange prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss and other comprehensive income as a part of total profit. Translation differences on monetary financial assets measured at fair value through profit or loss are included as a part of the fair value gains and losses.

(c) Financial Instruments

Financial assets

Classification

Financial assets are measured at fair value on initial recognition. The Company then classifies its financial assets in the following measurement categories:

i. Amortised cost

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(c) Financial Instruments (continued)

A financial asset is measured at amortised cost if both of the following conditions are met: (a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and (b) the contractual terms of the financial asset

give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.

Financial assets classified at amortised cost are carried at the amount at which the asset was measured upon initial recognition, minus principal repayments, plus or minus the cumulative amortisation of any premium or discount, and minus any write-down for impairment or uncollectibility.

ii. Fair value through other comprehensive income (“FVOCI”)

A financial asset is measured at FVOCI if both of the following conditions are met: (a) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI on the principal amount outstanding.

iii. Fair value through profit or loss (“FVTPL”)

A financial asset is measured at FVTPL if it is does not meet the criteria to be measured at amortised cost or at FVOCI.

The classification of financial assets is generally based on the business model under which the asset is held and its contractual cash flow characteristics as described below.

A business model assessment is performed to determine how a portfolio of financial assets is managed in order to achieve the Company’s business objectives. Judgment is used in determining the appropriate business model for a financial asset. The three categories of business models are hold to collect, hold to collect and sell, and other.

For the assessment of a business model, the Company takes into consideration the following factors:

• How the performance of assets in a portfolio is evaluated and reported to Executives and other key decision makers within the Company’s business lines;

• How compensation is determined for the Company’s business lines management that manages the assets;

• Whether the assets are held for trading purposes i.e., assets held within a business model and how those risks are managed; and

• The frequency and volume of sales in prior periods and expectations about future sales activity. Information about sales activity is not considered in isolation, but as part of an overall assessment of how the Company’s stated objective for managing the financial assets is achieved and how cash flows are realized.



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Financial assets that are not held to collect, or both held to collect and sell are assessed at a portfolio level reflective of how the asset or group of assets are managed together to achieve a particular business model. Financial assets whose performances are evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

Contractual cash flow assessment

The contractual cash flow characteristics assessment involves assessing the contractual features of an instrument to determine if they give rise to cash flows that are consistent with a basic lending arrangement. Contractual cash flows are consistent with a basic lending arrangement if they represent cash flows that are solely payment of principal and interest (“SPPI”) on the principal amount outstanding.

In assessing whether the contractual cash flows are SPPI, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Company considers:

contingent events that would change the amount and timing of cash flows; leverage features; prepayment and extension terms; terms that limit the Company claim to cash flows from specified assets; and features that modify consideration of the time value of money.

Principal is defined as the fair value of the instrument at initial recognition. Principal may change over the life of the instrument due to repayments or amortization of premium/discount. Interest is defined as the consideration for the time value of money and the credit risk associated with the principal amount outstanding and for other basic lending risks and costs (liquidity risk and administrative costs), and a profit margin.

If the Company identifies any contractual features that could significantly modify the cash flows of the instrument such that they are no longer consistent with a basic lending arrangement, the related financial asset is classified and measured at FVTPL.

With the exception of investments in equity securities, all financial instruments are classified at amortised cost at the reporting date. Investments in equity securities are classified at FVTPL.

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Recognition and derecognition

The Company initially recognises financial assets and liabilities on the date which they are originated. Regular-way purchases and sales of financial assets) are recognised on the trade date, which is the date on which the Company becomes a party to the contractual provisions of the instrument.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. If the Company has neither transferred nor retained substantially all the risks and rewards of ownership, an assessment is made whether the Company has retained control of the financial assets.

Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.

The Company considered that the carrying amounts of financial assets recorded at amortised cost, less any impairment allowance, in the financial statements approximated their fair values. See fair value measurements in Note 3(i).

Modification

If the terms of a financial asset are modified, the Company evaluates whether the cash flows of the modified asset are substantially different.

If the cash flows are substantially different, the contractual rights to cash flows from the original asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible transaction costs. Any fees received as part of the modification are accounted for as follows:

• fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of the eligible transaction costs are included in the initial measurement of the asset; and

• other fees are included in profit or loss as part of the gain or loss on derecognition.

When a new financial asset is recognized, it will generally be recorded in Stage 1, unless it is credit impaired on recognition.

If cash flows are modified when the borrower is in financial difficulty, then the objective of the modification is usually to maximize recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Company plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place. The financial asset continues to be monitored for increases in credit risk and impairment.

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If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, the gross carrying amount of the financial asset is recalculated using the original effective interest rate of the asset and the adjustment is recognized as a modification gain or loss in profit or loss.

Financial liabilities

Financial liabilities are any liabilities that are:

i. Contractual obligations to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Company;

ii. Contracts that will or may be settled in the Company’s own equity instruments and are either a non-derivative for which the Company is or may be obliged to deliver a variable number of its own equity instruments, or a derivative that will or may be settled either by exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments.

Financial liabilities are classified as either a) FVTPL or b) other financial liabilities.

Financial liabilities are classified as FVTPL where the financial liability is either held for trading or it is designated as FVTPL. Financial liabilities at FVTPL are stated at fair value with any resulting gain or loss recognised in the statement of profit or loss and other comprehensive income.

Financial liabilities classified at amortised cost are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method with interest expense recognised on an effective yield basis.

The Company’s financial liabilities comprise deposits accepted from customers, life insurance fund liability, and other liabilities. Financial liabilities (or parts thereof) are derecognised when the liability has been extinguished and the obligation specified in the contract is discharged, cancelled, or expires.

(d) Impairment of financial assets

The Company recognises loss allowances for expected credit losses (“ECL”) on financial assets measured at amortised cost and measures impairment losses at amount equal to 12-month ECL or lifetime ECL depending on the stage in which the asset is classified.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial asset. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

Impairment of financial assets is recognised in three stages:

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(d) Impairment of financial assets (continued)

Stage 1 – When a financial asset is originated, ECLs resulting from default events that are possible within the next 12 months are recognised and a loss allowance is established. On subsequent reporting dates, 12-month ECL also applies to existing financial assets with no significant increase in credit risk since their initial recognition.

Stage 2 – If the credit quality subsequently significantly deteriorates for a particular portfolio or transaction, the Company recognises the full lifetime expected credit losses.

Stage 3 – At a later date, once one or more default events have occurred on the transaction or on a counterparty resulting in an adverse effect on the estimated future cash flows, the Company recognises the full lifetime expected credit losses. At this stage, the financial asset is credit-impaired. In determining whether a significant increase in credit risk has occurred since initial recognition, and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and forward-looking information.

The assessment of whether an asset is in stage 1 or 2 considers the relative change in the probability of default occurring over the expected life of the instrument, and is not assessed based on the change in the amount of the expected credit losses. This involves setting quantitative tests combined with additional indicators such as credit risk classification and other observable inputs. Assets that are more than 30 days past due, but not credit-impaired, are classed as stage 2.

Changes in credit loss, including the impact of movements between the first stage (12 month expected credit losses) and the second stage (lifetime expected credit losses), are recorded in the statement of profit or loss.

IFRS 9 requires the use of more forward looking information including reasonable and supportable forecasts of future economic conditions. The requirement to consider a range of economic scenarios and their possible impact on impairment allowances is a subjective feature of the IFRS 9 ECL model. The Company continues to develop its capability to model a number of economic scenarios and capture the impact on credit losses to ensure the overall ECL represents a reasonable distribution of economic outcomes. The application of IFRS 9 does not alter the current definition of default currently used to determine whether or not there is objective evidence of impairment of a financial asset.

The Company considers a financial asset to be in default when:

• The borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company through actions such as realizing security (if any held);

• The financial asset is more than 90 days past due; or • The borrower is on principal only repayment terms.

Impairment losses for financial assets measured at amortised cost are deducted from the gross carrying amount of assets.

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(e) Income and expense

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorter period to the net carrying amount of the financial asset or liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Premium income is recognised at the time a policy comes in force. Premiums are shown net of deductions for refunds, commissions, and taxes or duties levied on gross premiums.

Policies written prior to 2017 were paid in full at the origination of the contract for the term of the contract. The maximum term of any contract is 72 months. For these policies, the contract amount is recognised as premium income with an associated expense being recognised relative to life insurance fund liability. Refunds on unexpired insurance contracts are allowed on early withdrawal using the “Rule of 78” method.

Premiums for policies written in 2017 are assessed on a monthly basis and are calculated on the current balance of the associated loan. Such premiums are recognised when assessed.

Death claims are charged to income after the claims are verified by the Company. Claims that are incurred but not yet reported are included in the life insurance fund liability and charged to income on the reporting date. Commission expenses incurred on premium income are recognised in the same manner as premiums written. Other income and expenses are recognised on the accrual basis.

(f) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

(g) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. Ordinary shares whose terms do not create contractual obligations, are classified as equity.

(h) Related parties A related party is a person or entity that is related to the Company and includes:

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(h) Related parties (continued)

i. A person or close member of that person’s family is related to a reporting entity if the person:

a. has control or joint control of the Company b. has significant influence over the Company; or c. is a member of the Company’s key management personnel, including directors.

i. An entity that is related to the Company if any of the following conditions exist:

a. An entity that is a member of the same group as the Company; b. An entity that is associated with, or is a joint venture partner with the Company; c. An entity that is a post-employment benefit plan for the benefit of employees of

the Company; d. An entity that has the ability to control or exercise significant influence over the

Company in making financial or operational decisions; and e. An entity that is jointly controlled or significantly influenced by parties

described in i) above.

Transactions with related parties are disclosed in Note 7.

(i) Taxation

Life insurance premium tax is incurred at the rate of 3% of premiums written. Effective July 1, 2018 VAT was increased from 7.5% to 12%. The Company is required to pay value added tax (VAT) at a rate of 12% on goods and services as prescribed by the Value Added Tax Act.

Under the laws of The Bahamas, there are no income taxes, capital gains or other corporate taxes imposed. The Company’s operations do not subject it to taxation in any other jurisdiction.

(j) Critical Accounting Judgments and Key Sources of Estimation Uncertainty

In the application of the Company’s accounting policies, which are described in Note 2c, management is required to make judgments estimates and assumptions about carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in assumptions may have an impact on the financial statements in the period the assumptions changed. Management believes that the underlying assumptions are appropriate and the Company’s financial statements therefore present the financial position and the results fairly.

The following are the judgments and estimates that management has made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Critical estimates

(a) Life insurance fund liability The Company calculates its actuarial liabilities for individual life insurance policies using

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3. Summary of Significant Accounting Policies (continued)

(a) Life insurance fund liability (continued)

the Canadian Policy Premium Method (“PPM”). The calculation of these policy reserves is based on assumptions as to future rates for mortality and morbidity, investment yields, policy lapse and expenses, which contain margins for adverse deviations. Changes in the liability are estimated with assistance of an independent actuary and charged to profit or loss.

Key judgments

(b) Fair value of financial instruments

IFRS 13 requires that the classification of financial instruments at fair value be determined by reference to the source of inputs used to derive the fair value. This classification uses the following three-level hierarchy: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities

that the entity can access at the measurement date.

Level 2 Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3 Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The best evidence of fair value is quoted price in an active market. In most cases, however, the Company’s financial instruments are not typically exchangeable or exchanged and therefore management applies judgement to determine their fair value.

All of the Company’s financial assets and liabilities are valued as Level 2 instruments. Since the calculation of fair value is based on management’s estimates, which involve uncertainties, the amount realised in a sale or immediate settlement of the instruments may differ from the estimated amount.

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3. Financial Instruments

The carrying amounts of financial assets and financial liabilities are as follows:2019

Amortised Other FinancialCost Liabilities Total

Financial Assets

Investments (Note 5) 40,043,420$ -$ 40,043,420$

Due from Parent (Note 8) 5,424,987$ -$ 5,424,987$

Financial Liabilities

Other liabilities -$ 80,815$ 80,815$

2018

Amortised Other FinancialCost Liabilities Total

Financial Assets

Investments (Note 5) 39,993,331$ -$ 39,993,331$

Due from Parent (Note 8) 4,794,464$ -$ 4,794,464$

Financial Liabilities

Other liabilities -$ 56,950$ 56,950$

The Company’s financial instruments comprise cash, short-term instruments and instruments payable on demand. Due to the nature of the Company’s financial instruments, management estimates that their carrying amounts approximate fair value.

The following table shows income statement information on financial instruments:

2019 2018IncomeInvestments 1,745,978$ 1,750,956$ Due from parent 213,695 252,300

1,959,673$ 2,003,256$

4. Investments Investments are as follows:

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Maturity 2019 2018Bahamas Government Registered StockPrime + 5/32 % 2019 -$ 175,500$ Prime + 1/24 % 2019 - 5,000,000 4.125% Fixed 2022 1,500,000 1,500,000 Prime + 1/4 % 2022 85,500 85,500 Prime + 3/16 % 2022 21,400 21,400 Prime + 13/32 % 2022 21,400 21,400 Prime + 7/32 % 2023 537,800 537,800 Prime + 3/8 % 2023 104,200 104,200 Prime + 11/32 % 2023 94,000 94,000 Prime + 9/32 % 2023 72,700 72,700 Prime + 5/16 % 2024 25,700 25,700 Prime + 9/32 % 2025 306,100 306,100 Prime + 5/16 % 2026 1,246,700 1,246,700 Prime + 5/16 % 2027 651,000 651,000 Prime + 9/64 % 2029 27,400 27,400 Prime + 5/32 % 2030 4,497,200 4,497,200 Prime + 11/32 % 2031 673,800 673,800 Prime + 11/64 % 2031 72,600 72,600 Prime + 3/8 % 2032 1,414,600 1,414,600 Prime + 13/32 % 2032 109,300 109,300 Prime + 3/16 % 2032 228,700 228,700 Prime + 1/8 % 2032 505,400 505,400 Prime + 3/32 % 2032 1,349,900 1,349,900 Prime + 13/32 % 2033 1,073,900 1,073,900 Prime + 7/16 % 2033 173,500 173,500 Prime + 13/64 % 2033 700,300 700,300 Prime + 7/32 % 2034 2,289,300 2,289,300 Prime + 7/48 % 2034 9,263,300 9,263,300 Prime + 15/64 % 2035 1,931,000 1,931,000 Prime + 19/32 % 2036 428,700 428,700 Prime + 1/4 % 2036 1,196,300 1,196,300 Prime + 5/8 % 2037 890,900 890,900 Prime + 17/96% 2037 736,700 736,700 Prime + 3/8 % 2024 5,175,500 -

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Bahamas Mortgage Corporation BondsPrime 2024 500,000 500,000Prime + 1/4% 2029 500,000 500,000Prime + 1/2% 2034 1,000,000 1,000,000

2,000,000 2,000,000

Accrued interest receivable 638,620 588,531

Total Investments 40,043,420$ 39,993,331$

Investments categorized by maturity are as follows:2019 2018

Current (due within one year) - - Non-current (due after one year) 40,043,420 39,993,331

Government and government related investments comprise the Company’s investments. There is not a very active market for these investments. Primary brokers of these types of instruments trade similar instruments at par value. Accordingly, management determined that their fair values approximate their carrying values.

Investments include $2,289,300 (2018: $2,289,300) in Bahamas Government Registered Stock held in trust by The Insurance Commission of The Bahamas pursuant to Section 43(2) of The Insurance Act 2005 and paragraph 62 of the Insurance (General) Regulations, 2010.

6. Life Insurance Fund Liability

The Company provides credit life insurance in respect of the Parent’s borrowers.

The life insurance fund liability in respect of credit life insurance contracts is calculated as:

i. The sum of the present value of expected future death claims, withdrawal claims and administrative expenses for single premium contracts, and

ii. The sum of the present value of expected future death claims, withdrawal claims, commissions and administrative expenses, less expected future monthly premiums, for monthly premium contracts.

An actuarial valuation of the life insurance fund liability was conducted as at December 31, 2019 by Oliver Wyman of Toronto, Canada. The valuation included a provision of $321,015 (2018: $338,544) for claims incurred but not yet reported. The Company’s experience is that death claims are normally settled within one year of the reporting period.

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The movement in the life insurance fund liability is as follows:

2019 2018

Balance at beginning of the year 2,951,007$ 5,599,372$ Change in assumptions 22,756 (1,712)Termination policies (810,651) (1,653,813)Impact of aging (524,502) (1,172,791)Change in IBNR (17,528) 114,448New business 22,458 17,954

Change in unearned premium reserve 38,572 47,549

Net change in unearned premium reserve (1,268,895) (2,648,365)

Balance at end of the year 1,682,112$ 2,951,007$

Balances at the end of the year are expected to be settled as follows:

2019 2018Current (within one year) 1,093,000 1,328,000 Non-current (after one year) 589,112 1,623,007

Total Life Insurance Fund Liability 1,682,112$ 2,951,007$

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The table below provides the impact of a 10% change in assumptions on mortality rates, policy lapse rates, loan interest rates, expenses and inflation as at December 31:

B$' 000 %Mortality Loan Expense Initial Ultimate Total Increase Increase

per Lapse Interest per Inflation Interest Interest Reserve over overScenario $1,000 Rate Rate Policy Rate Rate Rate (B$ '000) Base BaseBase 2019 4.5 48% 15.50% $13.86 3.30% 3.45% 3.25% 1,153Lower Interest Rate 4.5 48% 15.50% $13.86 3.30% 3.11% 2.93% 1,157 4 0.4%Mortality = 4.95 5.0 48% 15.50% $13.86 3.30% 3.45% 3.25% 1,218 65 5.7%Lapse = 59.40% 4.5 43% 15.50% $13.86 3.30% 3.45% 3.25% 1,173 21 1.8%Loan Interest = 17.05% 4.5 48% 17.05% $13.86 3.30% 3.45% 3.25% 1,156 3 0.3%Expenses = 15.25 4.5 48% 15.50% $15.25 3.30% 3.45% 3.25% 1,176 24 2.1%Inflation = 3.63% 4.5 48% 15.50% $13.86 3.63% 3.45% 3.25% 1,154 1 0.1%

B$' 000 %Mortality Loan Expense Initial Ultimate Total Increase Increase

per Lapse Interest per Inflation Interest Interest Reserve over overScenario $1,000 Rate Rate Policy Rate Rate Rate (B$ '000) Base BaseBase 2018 4.5 54% 15.50% $13.86 3.30% 3.45% 3.25% 2,443Lower Interest Rate 4.5 54% 15.50% $13.86 3.30% 3.11% 2.93% 2,451 8 0.3%Mortality = 4.95 5.0 54% 15.50% $13.86 3.30% 3.45% 3.25% 2,532 90 3.7%Lapse = 59.40% 4.5 59% 15.50% $13.86 3.30% 3.45% 3.25% 2,446 3 0.1%Loan Interest = 17.05% 4.5 54% 17.05% $13.86 3.30% 3.45% 3.25% 2,447 4 0.2%Expenses = 15.25 4.5 54% 15.50% $15.25 3.30% 3.45% 3.25% 2,470 27 1.1%Inflation = 3.63% 4.5 54% 15.50% $13.86 3.63% 3.45% 3.25% 2,444 2 0.1%

2019

2018

The methods and types of assumption used in preparing the sensitivity analysis did not change compared to the prior year

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7. Related Party Transactions and BalancesDuring the year, the Company paid commissions of $513,360 (2018: $373,201) to its sister company, Laurentide Insurance Agency for selling credit life insurance on behalf of the Company to borrowers from the Parent.

The deposit with Parent and due from Parent balances earns interest at the Bahamian prime rate 4.25% per annum (2018: 4.25%). The due from Parent balance has no fixed terms of repayment.

The Company pays an annual management fee of $300,000 (2018: $300,000) to its Parent for undertaking its administrative activities.

8. Risk Management

Capital risk management The Company manages its capital to ensure that it exceeds regulatory capital requirements and will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. The Company’s risk management structure promotes making sound business decisions by balancing risk and reward. It promotes revenue generating activities that are consistent with the risk appetite of the Company, the Company’s policies and the maximization of shareholder’s return.

The capital structure of the Company consists of equity attributable to the common equity holder of the Company, comprising issued capital, contributed surplus and retained earnings. The Company’s board reviews the capital structure at least annually. The Company manages its capital structure through the payment of dividends, new share issues and capital contributions.

The Company is licensed to conduct long term insurance business under The Insurance Act 2005 (the “Act”).

Under section 60(1)a of The Insurance (General) Regulations, 2010 (the “Regulations”) an insurance company is required to have a minimum paid-up and unencumbered share capital of not less than three million dollars. As at December 31, 2019 the Company had $300,300 (2019: $300,300) in share capital and $2,750,000 (2018: $2,750,000) in contributed surplus. The Company’s board passed a resolution on December 6, 2011 making the contributed surplus non-distributable.

The Company is required to establish and maintain a minimum statutory deposit of $2 million, such deposit to be held in trust pursuant to section 43(2) of the Act and paragraph 62 of the Regulations. The LIM Statutory Reserve Trust was established on December 20, 2011 with assets valued at $2,289,300 as at December 31, 2018 (2018: $2,289,300).

The Company is required to maintain a solvency margin pursuant to paragraph 90 of the Regulations. For the purposes of the Regulations, margin of solvency means the excess of the value of its admissible assets over the amount of its liabilities. The required margin of solvency is the greater of (a) twenty per cent of the premium income, including annuity premiums, in its last financial year; or (b) five hundred thousand dollars, plus the minimum amount of capital required. As at December 31, 2019, the minimum margin of solvency was $4,026,720 (2018: $3,746,402). The Company’s solvency margin at December 31, 2019 was $38,280,493 (2018: $36,985,371) resulting in a surplus of $34,253,773 (2018: $33,238,969).

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8. Risk Management (continued)

Capital risk management (continued)

Paragraph 68 of the Regulations stipulates that of the value of the admissible assets which the Company must at any time have in order to maintain the minimum margin of solvency required by the Act, at least sixty per cent shall be in the form of qualifying assets. As at December 31, 2018, the Company had $40,043,420 (2018: $39,993,331) in qualifying assets and $40,043,420 (2018: $39,993,331) in admissible assets as defined under paragraphs 70 and 72 of the Regulations, respectively.

The Company’s strategy for managing capital is unchanged from the prior year. During the year, the Company was in compliance with all externally imposed capital requirements.

Credit risk

Credit risk arises from the potential failure of a counterparty to perform according to the terms of the contract. The Company’s credit risk is primarily concentrated in investments in debt securities issued by the Government of the Commonwealth of The Bahamas and other government-related entities. Significant changes in the economy could result in losses not provided for at the statement of financial position date. At the end of both years, there were no investments that were impaired or with contractual payments past due. Maximum credit exposure at the end of the year approximates the carrying value of all financial assets (Notes 4 and 5).Expected Credit Loss Measurement

ECL is a probability-weighted estimate of the present value of future cash shortfalls (i.e., the weighted average of credit losses, with the respective risks of default occurring in a given time period used as weights). An ECL measurement is unbiased and is determined by evaluating a range of possible outcomes. ECL measurement is based on four components: Probability of Default (“PD”), Exposure at Default (“EAD”) Loss Given Default (“LGD”) and Discount Rate, defined as follows:

• Exposure at default (EAD) is an estimate of the amount the Company expects to be owed at the time of default, over the next 12 months (12-month EAD) or over the remaining lifetime (Lifetime EAD), taking into account expected changes after the reporting period, including repayments of principal and interest.

• Probability of default (PD) represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months (12-month PD), or over the remaining lifetime (Lifetime PD) of the obligation;

• Loss given default (LGD) represents Company’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of exposure at the time of default (EAD). LGD is calculated on a 12-month or lifetime

• basis, where 12-month LGD is the percentage of EAD expected to be non-recoverable if the default occurs in the next 12 months and lifetime. LGD is the percentage of EAD

expected to be non-recoverable if the default occurs over the remaining expected lifetime of the loan;

• Discount The discount rate represents the effective interest rate (“EIR”) for the financial

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Credit risk (continurd)instrument or an approximation thereof. The expected losses are discounted to present value at the end of the reporting period.

The ECL for all products above are estimated via three components:

- EAD: Depends on the IFRS 9 asset classification. The EAD for due from parent and investments is the carrying amount on the statement of financial position.

- PD: The estimated 12-month and lifetime PD is based on the credit risk of the counterparty. The credit risk of the Parent Company and the issuer of the government debt are determined by historical and current financial loss experiences and other qualitative factors.

- LGD: LGD is aligned with historical experiences and financial strength of the counterparties. The estimate of the loss arising on default is based on the difference between the contractual cash flows due and those that the Company would expect to receive from its receivables and debt investments.

Significant increase in credit risk

A significant deterioration in credit quality of the Parent Company is represented by the Parent’s inability to repay contractual amounts owed and is defined as an SICR. Indications of an SICR also include the Parent’s financial performance relative to internal or external adverse financial changes. A significant increase in credit risk of the Government is determined by the number of days past due and other qualitative factors such as adverse external credit ratings by Moody’s and S&P.

Definition of default

The definition of default for the purpose of determining expected credit losses is consistent with the regulatory definition of default which considers the following indicators:

- an obligor is highly vulnerable to non-payment, e.g. a bankruptcy petition has been filed;- an obligor has selectively defaulted on a specific issue or class of obligations but it will

continue to meet its payment obligations on other issues or classes of obligations in a timely manner;

- an obligor has failed to pay one or more of its financial obligations (rated or unrated) - if the exposure is more or equal to 90 days past due it is automatically assessed as defaulted; or

- financial asset has a “defaulted” external rating Forward-looking information

A SICR incorporates all relevant, reasonable and supportable information, including forward looking information that is available without undue cost or effort.

ECL approach: Due from Parent Company

The related party loan with the Parent is repayable on demand, and expected credit losses are based on the assumption that repayment of the loan is demanded at the reporting date. Management has concluded that the Parent has sufficient accessible highly liquid assets if required to repay the loan at the reporting date, and any expected loss is more than likely to be immaterial.

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ECL approach: Due from Parent Company (continurd)Under IFRS 9, the maximum period over which expected impairment losses should be measured is the longest contractual period where the Company is exposed to credit risk. In the case of loans repayable on demand, the contractual period is the short period needed to transfer the cash once demanded. The Company has used the most recent sovereign credit rating of the Bahamas of BBB- and used the country’s risk rate of .38% (2018: .38%) and adjusts the PD based on the risk changes of the Parent. The Company applies an LGD of 16.06% (2018: 13.65%) based on the average sovereign default cased in the Caribbean region from 1983-2018 (2018: 1983 -2016) and adjusts the percentage for risks specific to the Parent. The LGD applied is 17% (2018: 15%).

The ECL impact was not material to the Company and therefore an ECL impairment provision has not been recorded.

ECL approach: Investments

The Company has applied the general approach for investments as defined in IFRS 9 and developed internal risk ratings for the investment portfolio based on the Parent Company’s risk management framework. Changes in internal risk ratings are primarily reflected in the PD parameters, which are estimated based on the Company’s historical loss experience at the relevant risk segment or risk rating level, adjusted for forward looking information.

A multiple probability model has been adopted by the Parent and applied to the Company’s investment securities. The model was developed to allow scenario analysis and management overlay where deemed necessary. Three calculations for ECL estimates are generated representing base case, best case and worst case, however the probability for the best case and worst case scenario was set to nil, and therefore the weight was only applied to the base case. The Company’s model calculated a PD of .002% (2018: .002%) based on the historical performance of the Investment portfolio and an LGD of 17% (2018: 15%) based on the average sovereign default rate of Caribbean Countries as noted above.

The ECL impact was not material to the Company and therefore an ECL impairment provision has not been recorded.

All financial assets are Stage 1.

Operational risk Operational risk is the potential for loss resulting from inadequate or failed internal processes or systems, human error or external events not related to credit, market or liquidity risks. The Company manages this risk by maintaining a comprehensive system of internal control and internal audit, including organizational and procedural controls. The system of internal control includes written communication of the Company’s policies and procedures governing corporate conduct and risk management; comprehensive business planning; effective segregation of duties; delegation of authority and personal accountability; careful selection and training of personnel and sound and conservative accounting policies, which are regularly updated. These controls and audits are designed to provide the Company with reasonable assurance that assets are safeguarded against unauthorized use or disposition, liabilities are recognised, and the Company is in compliance with all regulatory requirements.

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8. Risk Management (continued)Liquidity risk Liquidity risk is the potential for loss if the Company is unable to meet financial commitments in a timely manner at reasonable prices as they fall due. Financial commitments include liabilities to policy holders, suppliers and investment commitments.

The Company manages liquidity and funding risk by ensuring that sufficient liquid assets and funding capacity are available to meet regulatory requirements and financial commitments, even in times of stress. The Board of Directors oversees the Company’s liquidity and funding risk management framework.

There have been no changes in the policies and procedures for managing liquidity risk compared to the prior year.

Insurance risk Insurance risk is the risk of loss resulting from the occurrence of an insured event. Laurentide issues contracts for credit life insurance only on loans written by its Parent. All lives insured are debtors under closed-end consumer credit transactions that arise from direct loans with the Parent. The amount of life insurance at risk on any one individual is never more than the amount of the indebtedness outstanding from time to time. The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of amount of risk to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. At present, this risk does not vary significantly in relation to the location of the risk insured by the Company. To mitigate risk, no insurance contract is issued to persons aged 65 and over. Prior to 2017 no insurance contract was issued to persons aged 60 and over.

The amount of life insurance at risk on any one policy is as follows:

Policies written up to 2016: Auto loans - Maximum of $10,000 or net indebtedness to Parent All other loans - Maximum of $20,000 or net indebtedness to Parent

Policies written after 2016: All loans - Maximum of $70,000 or net indebtedness to Parent

Interest rate risk

Interest rate risk is the potential for a negative impact on the statement of financial position and/or statement of profit or loss and other comprehensive income arising from adverse changes in the value of financial instruments as a result of changes in interest rates.

Interest rate risk or interest rate sensitivity results primarily from differences in the maturities or repricing dates of financial assets and liabilities. Interest rate risk exposures, or “gaps” may produce favourable or unfavourable effects on interest margins depending on the nature of the gapand the direction of interest rate movement and/or the expected volatility of those interest rates.When financial assets have a shorter average maturity than financial liabilities, an increase in interest rates would have a positive impact on net interest margins, and conversely, if more financial liabilities than financial assets mature or are repriced in a particular time interval then a negative impact on net interest margin would result.

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Interest Rate Sensitivity If interest rates increase/decrease by 50 basis points and all other variables remain constant, the Company’s profit over the next 12 months is estimated to increase/decrease by $173,092 (2018: $175,994).

{Repricing date of interest sensitive instruments} Non-interestAs at December 31, 2019 Within 3 Months 3-12 months 1 - 5 Years Over 5 years rate sensitive Total

ASSETS $ $ $ $ $ $Investments 38,513,903 - - 1,529,517 - 40,043,420 Due from Parent 5,424,987 - - - - 5,424,987

Total financial assets 43,938,890 - - 1,529,517 - 45,468,407

LIABILITIESOther liabilities - - - - 56,952 56,952

Total financial liabilities - - - - 56,952 56,952

INTEREST RATE SENSITIVITY GAP 43,938,890 - - 1,529,517

{Repricing date of interest sensitive instruments} Non-interestAs at December 31, 2018 Within 3 Months 3-12 months 1 - 5 Years Over 5 years rate sensitive Total

ASSETS $ $ $ $ $ $Investments 38,463,814 - - 1,529,517 - 39,993,331 Due from Parent 4,794,464 - - - - 4,794,464

Total financial assets 43,258,278 - - 1,529,517 - 44,787,795

LIABILITIESOther liabilities - - - - 80,815 80,815

Total financial liabilities - - - - 80,815 80,815

INTEREST RATE SENSITIVITY GAP 43,258,278 - - 1,529,517

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9. Subsequent Event

COVID-19

On March 11, 2020 the World Health Organization (“WHO”) declared the outbreak of the Novel Coronavirus (COVID-19) as a global health pandemic. COVID-19 is a rapidly evolving situation and has adversely impacted global commercial activities. The rapid development and fluidity of this situation precludes any prediction as its ultimate impact, which may have a continued adverse impact on economic and market conditions and trigger a global recession.

Management continues to monitor developments relating to the pandemic and are having the necessary discussions with the Parent as the pandemic continues. Management will also have discussions with the Plan’s actuaries to determine to what extent assumptions used in the insurance liabilities calculations would be adversely impacted by COVID-19. Management has performed a going concern assessment and has concluded that based on the Company’s liquidity and strong equity position, there is no material uncertainty of the Company’s ability to continue on a going concern basis.

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LAURENTIDE INSURANCE AND MORTGAGE COMPANY LIMITED …

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